Collectors should always remember that not every debt they are trying to collect qualifies as a “debt” as defined by the FDCPA. Even debts that you would normally assume are covered, like unpaid credit card accounts or residential telephone bills, are not necessarily covered. In order to prevail on an FDCPA claim, the plaintiff bears the burden of proving that they incurred a “debt” as defined by the Act. Never assume that they can meet this burden.
A “threshold issue” for any FDCPA case is whether the plaintiff incurred a “debt” as defined by the FDCPA. The Ninth Circuit stated this succinctly:
“Because not all obligations to pay are considered debts under the FDCPA, a threshold issue in a suit brought under the Act is whether or not the dispute involves a ‘debt’ within the meaning of the statute.”
Turner v. Cook, 362 F.3d 1219, 1226-27 (9th Cir. 2004) (alleged obligation to pay commercial tort judgment not a “debt” under FDCPA). The FDCPA has a very specific definition for what constitutes a “debt” covered by the Act, as follows:
“The term ‘debt’ means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether such obligation has been reduced to a judgment.”
15 U.S.C. § 1692a(5). To prevail, an FDCPA plaintiff must present evidence showing they incurred a debt “primarily for personal, family, or household purposes.” This may be more difficult than is seems.
Courts around the country have recognized that if there is no evidence the collector was attempting to collect a “debt” as defined by the FDCPA, there is no “debt collection” and no violation. See, e.g., Bloom v. I.C. System, Inc., 972 F.2d 1067, 1068-69 (9th Cir. 1992) (no “debt” under FDCPA where defendant sought to collect on loan used for business venture); First Gibraltar Bank, FSB v. Smith, 62 F.3d 133,135-36 (5th Cir. 1995) (FDCPA claims dismissed where defendant sought to collect obligation arising out of commercial transaction); Pollice v. National Tax Funding, LP, 225 F.3d 379, 401-02 (3d Cir. 2000) (property taxes not “debts” under the FDCPA); Staub v. Harris, 626 F.2d 275, 278 (3d Cir. 1980) (municipal taxes not “debts” under the FDCPA); Mabe v. GC Servs, Ltd., 32 F.3d 86, 88 (4th Cir. 1994) (child support obligations not “debts” under the FDCPA); Graham v. ACS, 2006 WL 2911780, *2 (D. Minn. 2006) (unpaid parking tickets not “debts” under FDCPA); Betts v. Equifax Credit Info. Servs., Inc., 245 F.Supp. 2d 1130, 1133-34 (W.D. Wash. 2003) (towing and impoundment fees not a “debt” under FDCPA).
Credit card debts deserve special attention here. A court cannot simply assume that every individual with an unpaid credit card must have incurred a “debt” covered by the FDCPA. To identify the nature of the debt, the starting point would be an examination of the charges reflected on the monthly credit card statements. Even if these statements can be obtained, the charges listed will not be self-explanatory or determinative of the issue. Personal credit cards are often used for business purposes, and those business charges are not covered by the FDCPA. A charge for airline tickets or a hotel room might be for business reasons. Charges at an electronics store might be for an office computer. Restaurant charges could be for a business dinner. Groceries could be for the office, and even a charge at a gas station could be for a business trip.
If the majority of the charges comprising the balance on a credit card are for business expenses, the debt was not incurred “primarily for personal, family or household” purpose, and there is no FDCPA claim. See, e.g., In Re Creditrust Corp., 283 B.R. 826, 830-31 (D. Maryland 2003) (attempts to collect credit card used for business purposes not covered by FDCPA); see also Bloom, 972 F.2d at 1068-69 (loan made to friend for business investment not a “debt”); First Gibraltar Bank, 62 F.3d at 136 (commercial obligation not covered by FDCPA); Ditty v. CheckRite, Ltd., 973 F. Supp. 1320, 1338 (D. Utah 1997) (three checks used for debtor’s painting business not covered); Fleet National Bank v. Baker, 263 F. Supp.2d 150, 154 (D. Mass. 2003) (commercial real estate loan not covered).
Personal credit cards can also be used to obtain cash advances, and that cash can be used a myriad of purposes that are not covered by the FDCPA. A cash advance might be used to finance a small business or to make a business loan to a friend. Or the card cash advance can be used to pay taxes, fines, or for child support obligations, none of which are covered by the FDCPA. A debtor would need to be deposed to determine whether the cash advance funds were used to incur a “debt” under the Act.
Similarly, telephones are often used for business purposes. This includes cell phones, and even land lines that are located in residences, which might be used for home businesses. To identify whether a “debt” was incurred, the starting point would be looking at the charges reflected on the monthly phone bills. If the bills can be obtained, the charges will not be self-explanatory. Once again, the debtor would need to be deposed in order to determine if each of the charges is properly characterized as business or personal.
While some unpaid obligations will always qualify as a “debt” under the FDCPA, many will not. Collectors should examine each case individually to determine whether a “debt” was incurred and whether the Act applies.